PROFITS from a controversial new children’s hospital in Edinburgh are being channelled through tax havens to offshore investors, prompting criticism of public sector pension fund managers and the Scottish Government.
NHS Lothian is reportedly paying around £1.4 million a month for the Royal Hospital for Sick Children, which is lying empty on the edge of the capital, despite paying millions more than the contracted price to the developer for design issues to be fixed.
Intended as a replacement for the dilapidated Sick Kid’s Hospital on the edge of The Meadows in Edinburgh, the new hospital is years behind schedule and still cannot be occupied because of safety concerns linked to the ventilation and drainage of the building. The debacle is to be the focus of a public inquiry.
Now, a probe by The Ferret has found that the investors in the hospital that are listed on the Scottish Government website are incorrect and out of date. A study of Companies House data shows that there is a complex web of companies linked to the hospital’s private finance project. Many of the investors in the network are based in tax havens.
In response, critics have demanded that offshore private investors are removed from the project and said that the opaque funding model used to build the hospital is “unsustainable, unethical and makes no financial sense”.
According to the Scottish Government, the main shareholder in a company set up to manage the construction and maintenance of the new hospital is MacQuarie Global Capital Partners.
But accounts posted to Companies House reveal there is a entangled network of companies behind the hospital that ultimately ends with a fund called PPP Equity PIP LP. This fund, which holds investments in the hospital alongside those from a number of other UK private finance projects, is managed by Dalmore Capital Group.
According to Dalmore’s website, the PPP Equity PIP fund “provided investors with attractive yield returns from year one”.
Organisations that have invested in PPP Equity PIP include the Greater Manchester Pension Fund and Railpen – two pension funds based in England that manage millions of pounds for public sector workers.
Other partners to have investments in the PPP Equity PIP fund include the Tesco Pension Fund, and firms based in Switzerland, Luxembourg and Germany.
Switzerland and Luxembourg are ranked in fifth and sixth place respectively on the 2019 global Corporate Tax Haven index, which is produced by the Tax Justice Network.
This campaign group ranks countries on their index according to how much each jurisdiction helps companies minimise the tax they pay.
The accounts of another company in the group, called PPDI Finance Company Ltd, show that finance is raised on behalf of the investors in PPP Equity PIP by issuing “eurobonds” on a Guernsey-based stock exchange. The most recent bonds issued by the firm pay investors 6% interest per year – a lucrative return when many European government bonds currently pay negative interest rates.
Guernsey is 15th place in the latest Global Corporate Tax Haven index. This is because of the tax breaks and relative lack of transparency afforded to investors there.
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Academic Dexter Whitfield, a specialist in private finance at the European Services Strategy Unit, said: “I think there is only one conclusion to the issuance of Eurobonds through Jersey or Guernsey in that they are selling the bonds to wealthy investors or other corporate entities to raise capital for private finance projects precisely because investors will avoid UK taxation.
“The investors are not traceable because they operate behind multiple tiers of companies and subsidiaries.”
Whitfield explained that both investors in bonds, and the firms that issue them, benefit from issuing the bonds in Guernsey. “This is a win-win situation because the buyers of bonds get an annual tax-free return, assuming projects don’t hit a brick wall, and the issuer of the bonds makes a ‘turn’ in selling the bonds which is also tax free,” he added.
THE new Edinburgh Sick Children’s Hospital was funded through a private finance scheme set up under the SNP – dubbed Non-Profit Distributing or NPD. Despite the name, it remains the case that private firms that put cash into these schemes can, and do, make a profit on their investments.
NPD schemes were devised in response to public controversy surrounding the huge returns private investors made from an older generation of private finance schemes, set up under previous Holyrood administrations.
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Tom Waterson, Scotland health committee chair at trade union Unison, demanded that private financiers are dropped from the new Sick Kids hospital.
“Private finance shouldn’t be used at all.” he said. “The new version from the Scottish Government is just PFI light. We still haven’t learned the lessons from Scotland’s original PFI schemes, which were unbelievably expensive.
“Ultimately it’s all still lining the pockets of private investors and taking money out of the public sector that should be better spent on health care.”
Waterson also said pension funds serving public sector workers should stop putting cash into investments that use offshore tax havens, as they allow investors to avoid paying tax.
“No public pension fund should be invested in structures that promote tax secrecy, as this undermines the tax base and must surely be self-defeating,” he said.
The Ferret reported previously on the public sector pension funds that have invested in Scottish Private Finance projects with similar links to tax havens.
Its investigation found that two of the largest Scottish pension funds, Lothian Pension Fund and Strathclyde Pension Fund, had invested more than £150m between them in other Scottish private finance schemes.
It prompted calls from critics to find new ways to finance public infrastructure projects in Scotland.
Architect Malcolm Fraser, a long-standing critic of private finance, also argued in a recent open letter to Finance Secretary Derek Mackay that private finance schemes like those used to fund the Sick Kids Hospital drain money out of the public sector.
“The riches spent on the tangled threads of ownership and bureaucracy inevitably lead down to London, thus letting London boast about what an economic powerhouse it is, in sweating the extra from us for its benefit, then offshore,” he said.
Alison Johnstone, a Scottish Green MSP whose Lothian constituency includes the empty hospital, said that the “secretive” investors in PFI schemes are often shielded from paying out when projects fail, even though they can receive high returns.
“PFI was always about secretive investors squeezing vast profits out of public services, so it should not be surprising to learn that these faceless consortia squirrel public money away in offshore bank accounts and tax avoidance schemes,” she said.
“As usual, it is the public purse which shoulders the risk while the consortia rack up additional costs with every change.
She added: “Private finance is unsustainable, unethical and makes no financial sense. It is a symptom of a failed economic model and should have no place in a progressive, equal Scotland.”
In response, a Scottish Government spokesperson said: “Our Non-Profit Distributing programme model has delivered far better value to the public purse than PFI and PPP projects from the past. All project companies established under the NPD programme are UK registered and subject to corporation tax.”
A Railpen spokesperson responded: “We do not comment on specific investments.”
The Ferret is an editorially independent, not-for-profit co-operative run by its journalists and subscribers. You can find it at https://theferret. scot/ and can subscribe for £3 a month here: https://theferret.scot/subscribe/
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